Why do Hong Kong IPOs outperform those in the United States?

Regarding initial public offerings (IPOs), the Hong Kong Stock Exchange (HKEX) is king. A recent study by PwC found that IPOs launched in Hong Kong have a significantly higher success rate than those on Wall Street. So, what is the key to HKEX’s success? Here are reasons why Hong Kong IPOs outperform those in the United States.

The United States has a more developed and mature capital market

As a result, institutional investors have more interest in US IPOs. However, these same institutional investors are often more risk-averse and may be less likely to invest in a new or relatively unknown company.

In contrast, Hong Kong’s IPO market is dominated by retail investors, who are generally more willing to take on risks. For example, PwC’s study shows over 80% of funds raised through HKEX IPOs come from retail investors, compared to just 20% for US IPOs.

Another key reason for the success of HKEX IPOs is that listing requirements are generally less stringent than in the United States. For example, companies listing on HKEX are only required to have a minimum market capitalisation of HK$500 million (approximately US$64 million). In comparison, companies listing on the Nasdaq must have a minimum market cap of US$100 million. Find more info like this here.

As a result of these less stringent listing requirements, HKEX can attract a broader range of companies, including many that are relatively unknown. It gives investors more choice and potentially more opportunities for finding hidden gems.

Another critical reason why Hong Kong IPOs outperform those in the United States is that they are often priced more cheaply. US IPOs are typically under-priced to generate more interest from institutional investors. In contrast, HKEX IPOs are often priced closer to their actual value, which provides retail investors with a better opportunity to make money.

It should be noted that the recent success of HKEX IPOs is partly because many Chinese companies have been listed on the exchange. It has helped to fuel interest from both local and international investors.

Lastly, it is worth noting that the time frame from launch to listing is generally shorter in Hong Kong than in the United States. It is because there is less paperwork and bureaucracy involved in the process. As a result, companies can get their IPOs up and running quicker, which may help attract more investors’ interest.

Benefits of investing in Hong Kong IPOs?

Investors in Hong Kong IPOs can potentially enjoy many benefits.

First, as mentioned above, the listing requirements are generally less stringent than in the United States, which may provide investors with more choices.

Second, the shorter time frame from launch to the listing means that investors can get in on the action quicker and potentially reap the rewards sooner.

Lastly, as Hong Kong is home to many large and well-established companies, investing in HKEX IPOs may provide investors access to a broader range of growth opportunities.

Risks of investing in Hong Kong IPOs?

Of course, no investment is without risk, and many risks are associated with investing in Hong Kong IPOs.

First, as retail investors dominate the market, there is a greater chance that speculation could drive prices. It could lead to investors paying over the odds for a stock and potentially losing money if the price falls soon after listing.

Second, as many of the companies listed on HKEX are relatively unknown, there is a greater chance that they may not meet expectations. It could lead to investors seeing their shares lose value or even become worthless.

Lastly, it is worth noting that the Hong Kong IPO market has been known to be volatile and subject to sudden changes. For example, in recent years, there have been many high-profile IPOs that have underperformed or even failed ultimately.

As such, investors must be aware of the risks before investing in any Hong Kong IPO.

Despite the risks, many investors still see Hong Kong as a critical market for IPOs due to the potential benefits on offer.

With a wide range of companies and a shorter time frame from launch to listing, Hong Kong provides investors with an opportunity to take action quickly and potentially make some good returns. However, it is essential to remember that all investments come with risk, and there is no guarantee of success.